Search and destroy: Qihoo takes aim at Baidu

The challenge is on and Baidu Inc.’s (BIDU.US) market lead in search is the target. Better known for its software, Qihoo 360 Technology (QIHU.US) is taking on Baidu in China with plans to boost its search engine advertising revenue by 300 percent this year, in part by offering extra commission to ad agents.

Since launching its commercial search business last year, Qihoo has been hard at work extending the range of its platform’s offerings. As a result, its share of search traffic rose to 20 percent at the end of last year, up from 12 percent at the beginning of 2013. The company now aims to have 35 percent of the market before the year is out.

Baidu has long dominated the mainland market, even more so since Google Inc. started redirecting its mainland searches through Hong Kong in 2010. Players like Tencent Holdings (00700.HK) and Sohu.com Inc (SOHU.US) have tried but failed to truly challenge Baidu’s lead and now Qihoo is giving it a go with new tactics.

Qihoo plans to build on its established practice of using its three major varieties of freeware — internet security, browser and website directories — to gain advertisers by now offering to share more of the advertising revenue with agents. It’s also stepping up efforts to divert more of its freeware traffic to Qihoo’s search engine.

Qihoo has 35 advertising agents in 18 provinces and four cities, covering 85 percent of the small and medium-sized enterprises across the nation. To penetrate further into urban areas, Qihoo will offer these agents incentives to extend its network coverage, thereby avoiding a fight over existing clients.

Some ad agents have already cut ties with Baidu and turned to Qihoo. Qihoo isn’t saying what the revenue-sharing arrangements are, but there is speculation that it’s as high as 50 percent, well above Baidu’s 20 percent level.

With its strong position in mobile, Qihoo could narrow the gap with Baidu, but it might still take years for the software company to pose a significant threat to the market leader.

Apart from the Baidu-Qihoo tussle, the government is also trying to get into the search act with the launch of ChinaSo.com.

ChinaSo.com is the offspring of seven state-owned media firms, including People’s Daily, Xinhua News Agency and China Central Television. The state-owned search engine may not be focused on market share but it does create some noise and may further dilute Baidu’s dominance.

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